Hard May Become Soft

Updated: Jul 31 2004, 05:30am hrs
The PMs statement that the UPA government will take a hard look at all free trade agreements signed by the NDA government has put FTAs under a cloud. Any government has the sovereign right to a re-look. But the rationale for scrutiny has to be clear. The attitude cannot be to undo everything the previous government did. Especially when it comes to international agreements where a re-look could be seen as reneging on our obligations.

There are several strategic reasons behind signing FTAs. First, there is an urgent need to push economic diplomacy and cement the G-20. That explains the look East policy and FTAs with Singapore, Thailand and ASEAN and possible FTAs with South Africa, Brazil and China. In fact tension between the external affairs and commerce ministries on the merits of multilateralism vis-a-vis regionalism is not new. Hopefully, the diplomacy objective in South Asia and Africa is not dead. Second, prior to the Islamabad summit, there was an attempt to push sub-regional cooperation, at the expense of SAARC and SAFTA. This explains FTAs with Sri Lanka and Bangladesh and also BIMSTEC, the PM having gone to attend the first BIMSTEC summit. Third, one can use external triggers like WTO agreements or FTAs to push for domestic liberalisation.

Unfortunately, both in Geneva and elsewhere, the UPA government has signaled it is unwilling to liberalise and this leads to dissonance in the G-20 position. Indeed, there are problems in FTAs signed with Singapore and Thailand, especially on manufactured goods. There was also the problem of FTAs with Singapore and Thailand not quite meshing with the broader initiative with ASEAN. In the absence of a transparent indirect tax system and equivalent countervailing duty imposed on imports, domestic industry can legitimately complain. Protectionist sentiments also cannot be delinked from a genuine level playing field argument. India has accordingly responded by being unreasonable on rules of origin requirements, not just with Thailand, but also with Bangladesh and Nepal. Non tariff barriers have torpedoed FTAs with Bangladesh and Sri Lanka. Despite the new Kelkar Task Force recommending lowering of import duties, at least on manufactured products, the UPA governments liberalisation commitments are open to question. This reinforces the protectionism that had already become manifest under the NDA regime. It may be recalled that the FTA with Sri Lanka wouldnt have got off the ground without the then PMs personal intervention.

One cannot logically fault the new PM for mentioning a hard look. However, this hardness shouldnt amount to softness on liberalisation, notwithstanding the Left.